This article first appeared in Capital, The Edge Malaysia Weekly on February 18, 2019 - February 24, 2019

WHEN Malaysians voted for a change of government in May last year, ending Barisan Nasional’s (BN) unbroken 61-year rule, the outcome came as a total surprise to everyone, bar a handful.

Nervy investors responded to the unexpected loss of the coalition in the 14th general election (GE14) by dumping stocks perceived to be linked to former prime minister Datuk Seri Najib Razak as well as BN component parties.

About nine months to the historic day, most of these counters are beginning to show signs of a price recovery, albeit at a nascent stage.

“If you look at the companies that won contracts from some of the latest infrastructure projects, you will notice that even those that were previously deemed as Umno or BN-linked counters have managed to renew their contract or renegotiate a new contract,” a local market analyst tells The Edge.

“While the margin might be affected, it shows that the new government is looking beyond just political affiliation when awarding contracts.”

The Edge looks at some of the initiatives undertaken by these companies to chart new paths to demonstrate that they can compete under the new regime.

Some Umno-linked stocks appear to have bottomed out

Umno-linked KUB Malaysia Bhd has seen strong recovery in the first six weeks of this year, its share price rocketing 83% to close at 43 sen last Wednesday.

Over a one-year period, its share price has gained 6.5%. KUB opened the year strongly, making a single-day gain of 56% on Jan 3 as its share price increased to 37.5 sen from 24 sen.

Queried over the unusual market activity (UMA), KUB disclosed that its board of directors had received a letter from its largest shareholder, Anchorscape Sdn Bhd, stating that a few parties had expressed interest in acquiring part of the stake in KUB held by the investment holding company.

Anchorscape owns 52.17% of KUB and is linked to Darhim Dali Hashim and Datuk Abdul Rahman Mohd Redza. Darhim is a director of Prasarana Malaysia Bhd and CEO of Radimax Group Sdn Bhd, while Abdul Rahman is an Umno state assemblyman for Linggi, Negeri Sembilan.

Thus far, Anchorscape has not disposed of any of its shareholding.

However, the emergence of Deepak Jaikishan as a substantial shareholder in the company on Jan 9 is worth noting, given that the carpet businessman had filed a RM676 million property lawsuit against Najib and his wife Datin Seri Rosmah Mansor, with whom he was previously said to be close.

Nevertheless, Deepak only briefly appeared as a substantial shareholder as he disposed of a 1.88% stake in mid-January.

As at press time, the Umno-linked company was still the largest shareholder of KUB and recently appointed Wanita Umno vice-president Datuk Norzila Abdul Rahim as an independent and non-executive director.

Investors appear to have put politics aside, based on the interest in the company of late.

Apart from KUB, George Kent (M) Bhd and Malaysian Resources Corp Bhd (MRCB) also appear to have bottomed out, as seen by their recent share price increases.

George Kent and MRCB have clawed back some of their post-GE14 losses. Year to date, the former was up by a third to RM1.11 per share as at Feb 13 while the latter rose 18.7%, based on its closing price of 73 sen.

Joint project delivery partners (PDP) for the Light Rail Transit Line 3 Bandar Utama-Johan Setia (LRT3), both companies recently agreed with the Pakatan Harapan government to forego their PDP role and to accept a fixed-price contract of RM11.9 billion, less than half the original cost of RM31.65 billion, which includes land acquisition and interest during construction. Investors were of the view that a fixed-price contract was better than having the project scrapped.

The substantial shareholder of George Kent and that of MRCB are widely known to be linked to Najib. George Kent’s 42.21% controlling shareholder is Tan Sri Tan Kay Hock, while Tan Sri Mohamad Salim Fateh Din owns 16.6% of MRCB. Mohamad Salim recently stepped down as managing director of MRCB in favour of his son, Mohd Imran.

But the Employees Provident Fund is still MRCB’s single largest shareholder, with a 35.9% stake.

Notwithstanding their partial share price recovery, George Kent and MRCB are still “behind the curve” as their shares had plunged 69.5% and 32.5% respectively over the past year, with most of the decline seen in the aftermath of GE14.

Analysts are more bullish on MRCB with eight calling a “buy” while another two have a “hold”. The consensus average target price is 87 sen, indicating a potential return of 19.2%.

As for George Kent, all three analysts covering the stock recommend a “hold”, with an average target price of RM1 — a tenth lower than its current share price.

Another Umno-linked company is Destini Bhd. Its largest shareholder and group managing director, Datuk Rozabil Abdul Rahman, is Perlis Umno treasurer.

Rozabil has a 25.4% stake in Destini. From a low of 13 sen in December last year, Destini’s share price has jumped 22% year to date to close at 25 sen last Wednesday.

The recent announcement of a three-year contract extension from the Ministry of Home Affairs to maintain, repair and overhaul safety and survival equipment for the Royal Malaysian Police’s Pasukan Gerakan Udara suggests that Destini has the capability to win contracts from the new government.

Rozabil has stated that he is not looking to exit the company. But citing personal commitments, former member of parliament for Kulim-Bandar Baru and Umno member Datuk Abd Aziz Sheikh Fadzir resigned as independent and non-executive director in the aftermath of GE14.

A tale of two media companies

Abd Aziz appears more interested in Utusan Melayu (Malaysia) Bhd. At the end of January, he acquired 35 million shares or a 31.61% stake in the Malay media group from Umno via his private vehicle, Opulence Asia Sdn Bhd.

The transaction, at 19 sen per share — a premium of 7.5 sen or 65.2% over its then price of 11.5 sen — may result in Umno losing direct control over Utusan as the party only holds an 18.16% stake following the share sale.

However, it is uncertain whether Abd Aziz is holding the almost one third stake on behalf of the political party or in his own capacity.

Utusan’s share price has since doubled, in a sign that investors like the seemingly reduced role of Umno in the media group. Its other major shareholders include Tan Sri Syed Mokhtar Albukhary, via Nilam Setar (M) Sdn Bhd (14.76%), and Aspirasi Sigma Sdn Bhd (3.16%).

Abd Aziz is also the executive chairman of Utusan, which has been classified as a Practice Note 17 (PN17) company since August last year. At its close of 25.5 sen last Wednesday, the counter made some gains from its post-GE low of 8.5 sen when it tumbled 72.6%.

Another media company that Umno has an interest in is Media Prima Bhd, with a 7.96% stake held through its investment vehicle, Altima Inc. It is, however, not the single largest shareholder — perhaps the reason why Media Prima’s share price has been unaffected by the election outcome. Since GE14, the counter has been up by 30%. It closed at 41 sen last Wednesday.

Another notable politically-linked name is MyEG Services Bhd, which is 30.88% owned by Datuk Dr Norraesah Mohamad, its group executive chairman. Previously a senator, Norraesah is an Umno supreme council member.

Year to date, MyEG’s share price has inched up 2.6% but the government e-services provider is 60.6% down compared with a year ago.

Recently, Datuk Raja Munir Shah Raja Mustapha resigned as an executive director for medical reasons. In 2017, the former deputy head of Tanjung Umno division sold his 29.7% stake in MyEG to Norraesah.

Political risk is one of the key downsides for MyEG, according to analysts. Thus, investors will be keeping a close watch on whether the new government will renew the company’s concession when it is up for renewal in May 2020.

Most analysts, however, view the sharp share price decline as an opportunity to accumulate MyEG shares given the company’s strong track record in the foreign worker domain. All six analysts covering the stock have a “buy” call with an average target price of RM1.91, indicating a potential return of 91%.

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